ETF Talk: Are Chinese Technology Companies Future Asian Tigers?

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

In keeping with last week’s theme of highlighting international technology companies, today’s ETF Talk focuses on China. Indeed, China is the world’s most populous country and its people increasingly have money to spend on the latest smartphones, computers and other devices. U.S. companies such as Apple are placing big bets on the Chinese consumer, but there also are Chinese companies seeking to gain market share. An exchange-traded fund (ETF) which tracks these Chinese technology companies is the Guggenheim China Technology (CQQQ).

This non-diversified fund seeks investment results which, before fees and expenses, correspond generally to the performance of an index designed to track publically traded technology companies that are based in mainland China, Hong Kong or Macau and are open to foreign investors.

Following a solid 9.25% jump last year, CQQQ has risen 3.14% so far this year. For those of you interested in additional income, this ETF offers a 1.85% dividend yield. However, now may not be the best time to invest in CQQQ: technology stocks usually fall heading into the summer months, and China recently has had a few minor stumbles, such as slowing economic growth. Still, keeping an eye on this fund would be a good idea, both from an educational standpoint, and potentially to buy when CQQQ is ready to rise steadily again.

Since CQQQ is a technology ETF, the vast majority of its holdings, 85.08%, are in that sector. The fund’s remaining assets are in various sectors that either support or are benefitted by technological infrastructure: utilities, 4.62%; industrials, 4.57%; basic materials, 3.24%; healthcare, 1.60%; and communication services, 0.90%.

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The top ten individual companies held by CQQQ make up 59.66% of the fund’s total assets. As an ETF focused on Chinese entities, CQQQ holds several companies not frequently traded on American exchanges. These companies include its top two holdings, Tencent Holdings Ltd., 8.84%; and Lenovo Group, Ltd., 7.67%. The remaining members of this ETF’s top five companies are: NetEase, Inc., 7.46%; Baidu, Inc., 7.18%; and Sina Corporation, 6.26%.

As I wrote earlier, the current economic slowdown in China is among the factors that cause me not to recommend the fund at this time. Rather, let’s monitor CQQQ and not invest hard-earned money in the ETF right now. It could be quite beneficial to keep an eye on this fund, since China has massive potential for continued technological growth.

Meanwhile, if you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.

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The action in the financial markets over the past week and a half has been tumultuous to say the least. Last week (between Monday’s open bell and Friday’s closing bell), the major market indices -- the Dow, S&P 500 and NASDAQ Composite -- all sank more than 2%, with the selling really heating up after the Boston Marathon bombings. Small cap stocks got hit even harder, as they were slammed with a 3%-plus loss. The real losing sector, however, was precious metals. Gold and silver plunge

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